Jobs Act Might Be Worse than Nothing

September 21, 2011

In a moment, the narrative has switched from whether the president's jobs plan will do any good for the economy to whether the president's political opponents would allow his plan to do any good for the economy. This is an unfortunate twist considering that there is no reason to believe that a collection of measures to temporarily increase after-tax household and corporate income, transfer more money to state and local governments, and change terms of unemployment insurance would reliably boost growth, says Economic Policies for the 21st Century.

The wild and sporadic government intervention of the last few years has left business managers and small business owners unable to form reliable expectations about the future of employment costs, tax rates, credit availability or labor relations.

Other uncertainties exist, including concerns over whether new competition will emerge, whether products will be embraced, and how the rise in taxes will impact business, access to capital or after-tax returns on investment.

The uncertainty impacts multiple levels of economic activity. Indeed, investors allocating capital across industries must speculate about how business leaders are going to respond to the policy uncertainty. No one can have much confidence in long-term financial plans, given the extraordinary level of economic uncertainty that the lack of action on these issues produces.

Rather than embrace the administration's calls for more fine-tuning, Congress should focus on generating even larger savings through the select committee on deficit reduction. Larger spending reductions would provide businesses and households with some confidence that the government's share of the income from new investments will not rise substantially or render new projects uneconomic.